Couple minimum wage hike to earned income tax credit

Published March 6, 2014 at 9:44 pm

The Minnesota Legislature is moving toward an overdue increase in the state minimum wage. The state minimum wage is below the federal minimum of $7.25 per hour, so it would seem that raising the state minimum to be in compliance with the federal minimum makes sense.

However, the Legislature wants to go far above that. Many are calling for an increase to $9.50, although negotiations broke down after some would go no higher than $8.50.

We think it makes the most sense to move into conformity with the federal law so that Minnesota businesses and workers can be competitive with other states. That may not affect most fast-food workers, but it will affect those involved in businesses that can move across state lines.

Some will argue that $7.25 is not enough to live on, and they would be correct. That’s why most people who work for the minimum wage, do so only part-time, carry two jobs or come from a two-income family.

However, increasing the wage much above the federal minimum will increase the incentive for businesses to automate or relocate, causing the loss of jobs now held by those that the hike was supposed to help.

If a higher minimum wage will do only good, then why not raise it to $20? The reason is that it would cause many businesses to go out of business or at least lay off many workers in order to maintain profitability.

So, any increase needs to be done carefully, and with more consideration than just helping the poor.

Many economists regularly point out that increasing the earned income tax credit would do more to help the poor than increasing the minimum wage. With a $1.3 billion surplus in front of the state Legislature now, increasing the Minnesota Working Family Credit would be one way to give some of it to those lowest on the income ladder. Done properly, coupling compliance with the federal minimum wage to an increased earned income tax credit has better potential to help all low-income workers instead of creating winners and losers by raising the minimum wage more than some businesses can absorb.